Unconscionable Conduct In Contracts: Analysis Of A Case Study Essay.

Rofi is a Rohingya refugee from Burma who has recently arrived in Australia and is currently living in Adelaide. While walking in Rundle Mall one day he was approached by John who was selling high speed internet contracts for a newly formed company, The Bolton Connect Pty Ltd. Rofi who only learnt to speak English a year ago speaks very little English and John is aware of this. John explains the terms of the contract, which is essentially that Rofi would be bound to a 2 year contract and if he breaks the contract any time before the 2 years he will incur a $1,200 penalty. The contract comes with a free Samsung tablet. John uses some technical language to explain the terms of the contract to Rofi, aware that Rofi doesn’t understand the full extent of the contract terms. There is a telephone translation service available but John chooses not to use this as the translation service usually takes twice as long. John works on a commission basis. The more contracts he sells the more commission he makes. He is keen to sign up this contract quickly as he needs to sign up three more contract before close of business to meet this month’s quota.

Rofi has been thinking of getting internet connection as he wishes to Skype his family back home in Burma and also to do a free on-line English course. From what John told him he is under the impression that he can terminate this contract anytime he wants without any penalty and all he has to do is give Bolton Connect one month’s notice and return the tablet.

Three months into the contract Rofi finds that he is unable to cope with the financial demands of this contract as there are many hidden costs which he was unaware of. When he contacted Bolton Connect to give his termination notice he was shocked to learn that there is a $1200 penalty. Rofi comes to you for advise.

Advise Rofi if this contract with Bolton Connect is valid? If yes, why, and if not, why not? Can he get out of this contract?

Australian Consumer Law and Unconscionable Conduct

It is to be determined whether a valid contract was formed between The Bolton Connect Pty Ltd and Rofi in relation to the chosen case study considering the clause of unconscionable conduct According to Knapp, Crystal & Prince (2016), it can be said that action or statement will be considered to be unconscionable conduct if it is unreasonable and defies good conduct. However, it is to be stated that that this provision is general and ambiguous as there is no exact meaning of the provision, defined by law.

Australian Consumer Law governs the provision of unconscionable conduct in the country Australia. Schedule two of the Australian Competition and Consumer Act 2010 also deals with the same provision.

According to section 21 of the Australian Competition and Consumer Act 2010 it can be stated that a contract should not be signed by any consumer until he has had a full understanding to the contract terms in case of a written contract. The conduct of a person, dealing with supply or acquisition of goods and services shall be considered to unconscionable in all situations.

Sub section 3 of the aforementioned act states that the court while determining whether the provision as stated in subsection 1 has been violated will consider those circumstances which are foreseeable to a reasonable man.

Subsection 4c states that in order to determine whether unconscionable conduct was involved at the time of contract formation by the parties, the court will take into consideration the contract terms. The court might also consider how the duties of the parties to the contract were performed in determining unconscionable conduct. The court might also consider the circumstance and situations of the parties at the time of contract formation.

It is to be stated that according to common law the intervention of equity is essential in circumstances where one of the parties takes advantage of the disability of the other party. Examples of such circumstance include lack of understanding, lack of education, age or all the factors combined. In situations where it can be established that the terms of the contract very harsh and would eventually create oppressive results on of the party, such aggrieved party has the option to rescind the contract.

There are some of the remarkable cases of unconscionable conduct that have been decided by the court. In the notable case Commercial Bank of Australia v Amadio (1983) 151 CLR 447; [1983] HCA 14 the court had to address an issue related to unconscionable conduct. It is to be mentioned that in this case the plaintiffs were the defendant’s parents. The defendant had induced the plaintiffs to act as guarantor of a loan taken by the defendant. The plaintiffs on account of being Italians did not have much understanding of the English language and lacked knowledge of business. The court held that the plaintiffs had the right to rescind the contract as they had entered into the same on unconscionable conduct. It was held that the terms of the contract were in defiance of good conduct therefore, intervention of equity was necessary.

Relevant Provisions under Australian Competition and Consumer Act 2010

Another remarkable case dealing with the same provision is Blomley v Ryan (1956) 99 CLR 362. In this remarkable case the defendant agreed to buy a farm from the plaintiff who was a 78 year old man and who regularly used indulge in alcohol intake. The court had ruled in favor of the plaintiff as the plaintiff was held to not have capacity to make a rational judgment under the influence of alcohol and the consideration amount was well below the market price.

In another notable case Louth v Diprose High Court of Australia (1992) 175 CLR 621; [1992] HCA 61 the plaintiff had an infatuation towards the defendant. The defendant had emotionally blackmailed the plaintiff by threatening to commit suicide and had taken advantage of the plaintiff’s feelings towards by forcing him to buy the house for her. However, after the relationship turned sour and the defendant and plaintiff fell out, the plaintiff started proceedings to recover the House. It was held by the court that had the right to recover the house as the defendant had created ‘an atmosphere of crisis’ which had no existence in reality. The actions of the plaintiff were held to be unconscionable as the plaintiff was emotionally dependant on the defendant at the time of contract formation.

In another latest case Kakavas v Crown Melbourne Ltd [2013] HCA 25 the high court of Australia addressed the issue related to unconscionable conduct. Section 51 AA OF THE Trade Practices Act 1947 was applied in the aforementioned case. However, the aforementioned section was repealed by ACCA section 2o which deals with Unconscionable conduct. It was held in this case that the plaintiff had an interest in gambling and the defendant had taken advantage of this which did not constitute unconscionable conduct as special disadvantage was not established.

It can be mentioned that in this given case study Rofi has been established to be a refugee. Rofi is not expected to have a good understanding of the English language as he is refugee who has just settled in Australia. It is to be noted that Rofi had contracted with John, agent of the Bolton Connect Pty td. The court in this scenario is expected to analyze the circumstances of the party, Rofi at the time of entering into the contract and the way the contract was carried out. It was mentioned to him that if he chooses to rescind the contract before two years he would be liable to pay a penalty of $1200 dollars. It can be stated that the terms of the contract were explained to Rofi in technical and English language, of which he did not have a good understanding. The agent John had not used the translation devices that were avail to him while explaining the contract terms to Rofi. Further it should be stated that John was in hurry to induce the other party into entering the contract and did not acknowledge the difficulties faced by the other party in understanding the terms of the contract.

After analyzing the facts as provided in the chosen case study it can be stated that there was unconscionable conduct on the part of John in attempting to make Rofi enter into the contract. The fact that Rofi had very little understanding of the language had been taken advantage of by John who induced Rofi to enter into the contract. The provision of unconscionable conduct can be established by the court upon the application of section 21(4) of the Australian Consumer Law which states that court is required to consider the circumstances at the time of contract formation. By applying the principles of the aforementioned cases as discussed earlier can it can be stated that Rofi was subjected to a position which is detrimental and therefore has the option to rescind the contract without paying the penalty charge. It can also be mentioned that there was hidden cost in the contract which was beyond Rofi’s understanding.

Conclusion

Thus to conclude it can be said that the contract between Bolton Connect Pty Ltd and Rofi can be rescinded by Rofi on the grounds of unconscionable conduct as exhibited by John.

References

Australian Competition and Consumer Act 2010

Blomley v Ryan (1956) 99 CLR 362

Commercial Bank of Australia v Amadio (1983) 151 CLR 447; [1983] HCA 14

Kakavas v Crown Melbourne Ltd [2013] HCA 25

Knapp, C. L., Crystal, N. M., & Prince, H. G. (2016). Problems in Contract Law: cases and materials. Wolters Kluwer Law & Business.

Louth v Diprose High Court of Australia (1992) 175 CLR 621; [1992] HCA 61